It may be the birthplace of classic children's characters such as Thomas the Tank Engine, Bob the Builder, Noddy and Peppa Pig, but now the UK's animation industry is warning that it will flee abroad faster than a flick-book figure unless it gets tax breaks.

More than three-quarters of Britain's 600-plus independent animation firms have either moved already or are considering shifting overseas, says a new report, Securing the Future of UK Animation. British stars such as Aardman Animations, creator of Wallace & Gromit, are pushing production work abroad to enjoy vital subsidies. The report estimates that animation conceived and produced in England alone has fallen from 83 per cent six years ago to 23 per cent.

Miles Bullough, Aardman's head of broadcast, says he is considering partnering a German production firm to make Ploo, a new pre-school animation, "purely... because of the parlous state of financing in the UK". By moving the work they could expect £870,000 in subsidies. "Ireland, France, Germany and Canada enjoy considerable support from regional and national government," he added. The UK offers no support for the industry, which employs an estimated 4,500 people in the UK, and which, worldwide, is worth around £43bn.

Animation UK, author of the report, believes offering tax breaks like those offered to films made here would enable work and talent to remain.

Hit Entertainment, poised to be sold to the US toy giant Mattel, says it benefits from overseas subsidies to produce some of the UK's best-loved classics. Thomas & Friends is produced in Canada, while Bob the Builder is made in America.

Oli Hyatt, chairman of Animation UK and director of Blue-Zoo, said the firm's Bafta-nominated series Alphablocks moved production to Israel to partner a firm there this year. "People around the world want to buy our content," he said. "We want to make it. If we stop, our talent base leaks overseas."

Marcus Kenyon, co-founder of Finger Industries, worked on initial designs of Mike the Knight with Hit Entertainment, but the show, which debuts on children's TV this month, was made in Canada. Finger's new project, Jack Mach, also to be made in Canada, will be sold to an international firm which is investing £4m to produce 52 10-minute episodes. Mr Kenyon said: "If we have to give away 65 per cent of production to Canada, we also have to give away 65 per cent of the merchandising income."

Jeremy Hunt, Culture Secretary, has indicated to Animation UK that he will be discussing future support at the film policy review before Christmas.